David S. Rose With Gust, Inc.

Intro: [00:00:00] You’re listening to Innovation Radio, where we interview entrepreneurs focused on innovation, technology and entrepreneurship. Innovation radio is brought to you by the world’s first theme park for entrepreneurs the Levein’s Center of Innovation, the only innovation center in the nation to support the founders journey from Birth of an Idea through successful exit or global expansion. Now, here’s your host, Lee Kantor.

Lee Kantor: [00:00:24] All right, Lee Kantor Here another episode of Innovation Radio. And this is going to be a good one. But before we get started, it’s important to recognize our sponsor, the Leuven Center of Innovation. Without them, we couldn’t be sharing these important stories. Today on Innovation radio, we have David S Rose and he is with Gust. Welcome.

David S Rose: [00:00:45] Thank you. It’s a pleasure to be here.

Lee Kantor: [00:00:47] I am so excited to learn what you’re up to. Tell us a little bit about gust how you serving folks.

David S Rose: [00:00:52] So Gust is the global platform for the entrepreneurial finance world. So we’ve been around for almost 20 years and we connect all the world’s startup companies to all the world’s early stage angel investors. So we are used on the one side by many of the world’s largest angel investment groups to handle all their applications for funding. And on the other side, we’re used by millions of founders to both create their companies, spin up and incorporate their companies here in the US, and then connect them to all of these investors and accelerators who are looking for innovative companies.

Lee Kantor: [00:01:25] Now are there right now a lot of incubators, accelerators, innovation centers. Is this something that you’re seeing that’s trending upward?

David S Rose: [00:01:35] Oh, absolutely. And the the whole world of accelerators is a relatively recent development. As recent things go, there are only maybe 15 or so years old and you’re seeing an increasing number. There are literally many, many hundreds of accelerators around the world. However, they are not all the same. There are a handful of top accelerators that are sort of household names and a developed reputation over a dozen years. There are another handful of newer accelerators associated with really great organizations that are spinning up rapidly and developing reputations. And then there are a lot of other ones that are people are trying, but they really haven’t been as successful and may not provide quite as much value.

Lee Kantor: [00:02:18] Now, is it something that is always or typically associated with universities or is some of them just private ventures?

David S Rose: [00:02:26] Oh, no. They’re actually the original accelerators. The very first of them was something called Y Combinator, which is still going strong and still toward the top of the heap. And that was just started up as a purely independent program to help founders who had gotten started accelerate their their activities. And then that spurred another a number of other accelerators that were purely independent accelerators. And so after a few years when the world saw companies coming out of these accelerators that were clearly taking advantage of the contacts and the skills and the training and the mentorship and the peer grouping that they had met at their accelerator, many organizations, both universities and businesses, said, Hey, we can really leverage what we have to help startup companies and therefore go ahead and and created their own accelerators. And so because of that, you’ve seen a number of universities have their own accelerators, you’ve seen companies, large banks and and manufacturing companies create accelerators. And so now you’ve got a pretty wide range from independent standalones to ones affiliated with the universities, ones affiliated with major innovation centers like Van and the like.

Lee Kantor: [00:03:34] Now, is it something that is skews towards technology firms or are there accelerators and incubators for firms in any industry?

David S Rose: [00:03:44] Yes and yes. And the answer is they do tend to skew towards access to technology because they skew to the kinds of companies that are suitable for outside equity financing from angel investors or or venture capital funds. And in reality, because starting a company is so risky, the only companies that are really viable for that outside equity funding, which is taking a lot of risk earlier on, are companies that can grow very, very rapidly and grow very, very big. And those companies tend to be technology companies because technology lets you scale and start small and grow big and the like. And so therefore, yes, most of these things are technology. However, the second yes is technology, which started out just being manufacturing chips and computers and then software and stuff like that has itself expanded over the last several decades. And so now everything is affected by technology. And what that means is you’re now seeing accelerators across the entire universe of things. There is what is known as as agricultural technology or agtech or food tech. You have urban tech proptech for real estate, fintech for the financial institutions. And for example, the romance center has got a. Accelerator coming up and called Spaceport, which is all about space technology. And so while you can have things like agriculture, it typically when you look at these accelerator programs, they typically are technology or scalable business models applied to a particular domain.

Lee Kantor: [00:05:18] So what’s your backstory? Have you always been involved in these early stage companies?

David S Rose: [00:05:23] My back story is I was born to this. I am actually a fifth generation serial entrepreneur myself. So I grew up with the idea of starting companies and entrepreneurial activities as sort of my my, my lifeblood. Back in the dot com boom in the 1990s, I was a finalist for the NY Entrepreneur of the Year award. My father won it in 2002. My father is currently 93 years old and is going strong and won the Entrepreneur of the Year in 2002. So that gives you some of the background there. But interestingly, on the other side, I am actually a third generation angel investor because my great uncle, after whom I was named the first David Rose, was actually one of the first angel investors in the mid 20th century. He was the angel investor behind things like the portable kidney dialysis unit, vascular stapling, hyperbaric operating chambers and the like. As a matter of fact, the main street of the Institute of Technology in Israel is David Rose Avenue. So I have a multigenerational history in both starting up companies and in investing in early stage companies.

Lee Kantor: [00:06:35] Now, any advice for the person that’s just getting started in angel investing? Are there some do’s and don’ts?

David S Rose: [00:06:42] Oh, there are. There are quite a few things about getting started in angel investing. As a matter of fact, I wrote a book about it, which is become a New York Times bestseller and is sort of the standard textbook on how to be an angel investor. And it’s called very imaginative title Angel Investing the Guts Guide to Making Money and Having Fun Investing in Startups. But the answer is just don’t do it blindly. Angel groups Groups of angel investors are a wonderful place to get started because it gives you a sort of instant peer group of people who’ve been there ahead of you, and you can ride along their coattails and watch what they do and leverage their deal flow and pool your resources with them to get started. If you start, start investing by yourself, without that kind of infrastructure or training or experience, you’re almost guaranteed to make a mistake because angel investing A It’s as bad as risky as things get. Doing it without a background or an out and understanding of how the economics work, what the time frames are, what standard terms are, what is, what else is happening in the industry. You’re almost guaranteed to fail if you try and do it on your own just starting. And that’s why we always strongly recommend that you work with a either a local group of angel investors or do some reading or find out more about it.

Lee Kantor: [00:07:55] And if you’re trying to join a group of angel investors in your community, is this something that you just Google Angel Investor Group and then nowadays there’s some one in every community? Or is it something that only in kind of the larger cities?

David S Rose: [00:08:10] No. Well, it started out originally back in the you know, the very first groups were started in probably the 1990, early 1990s, and they grew and grew from them. Today is the Angel Capital Association, which is the national umbrella organization of angel investment groups. And so you could go to Angel Capital Association dot org, pretty long name there. And they have a list of all their member groups, hundreds of groups around the country. If you want to cast a little wider net, you can go to August. On August G ust gusta, we actually have a directory of hundreds of 750 angel groups that you can look for over there, or you can just sort of Google it. But finding a group that’s either on dust or a member of the Angel Capital Association is a great place to start because those tend to be vetted groups that have been around for a while and or serious players, other people who call themselves an angel group may or may not actually be an angel group.

Lee Kantor: [00:09:08] Now, is the expectation different or the mindset different for an angel investor than, say, somebody that historically has invested in something like real estate or developing or things like that?

David S Rose: [00:09:20] Oh, yes, indeed. It absolutely is. My my other background actually is in real estate. And I’m these days I’m the CEO of the US real estate market. So I have a lot of experience in real estate as well. And believe me, they are very, very different. Investing in early stage companies is wildly risky. It takes a very long time. It tends to be binary, which is you either tend to lose your money or you tend to make a lot of money in it. It doesn’t pay anything along the way. While you’re waiting for you’re waiting for the good times to come. And so that’s angel investing real estate. On the other hand, you tend to buy a building or invest in a building, and it pays. Distributes, you know, every year or quarter or whatever. So you may often get distributions depending on what you’re investing in along the way. And typically it’ll take, depending on how you’re doing it, if you’re investing in a fund, for example, you can sell it at any time, more or less. So it’s a somewhat liquid, whereas in the case of angel investing, the average holding time for an angel investment in the United States is between nine and ten years. And from the minute you invest until that exit happens, not only do you not get any additional any cash out along the way, you can’t take your money back or take it out even if you really, really need it because it’s completely illiquid. And very often you’ll be expected to make another follow on investment because the company didn’t quite do what it hoped it would do with your initial investment. So angel investing is really crazy. Making it can be very risky. It can be remarkably rewarding if you do it and you do it right and if you know what you’re getting into. But no, it is unlike any other kind of investing now.

Lee Kantor: [00:11:01] This world of entrepreneurship, are you seeing a trend towards more people opening their mind to the possibly of themselves as an entrepreneur? There was a time maybe it was even now a decade or two ago, where the thought was, when you’re a young person, you’re going to go get a job. You know, you’ll stick with that job for a while. But today it seems a lot more chaotic and a person’s career takes many turns. Is entrepreneurship kind of the path that more and more people are opening themselves up to?

David S Rose: [00:11:33] Well, the idea of entrepreneurship is something that has gained extraordinary currency recently. When I was I mean, I’m not that old, but when I was in school there was not one single class course club or activity with the word entrepreneur in it. Whereas today you can’t walk down the street without finding yourself in front of some program or club or group or magazine or something about it. So what we are seeing is a remarkable societal openness towards being an entrepreneur and starting companies. That being said in the United States is certainly an entrepreneurial society, and that’s one of the things that differentiates us from most of the rest of the world. And people have always been starting companies. However, I would caveat that with the fact that not everybody is cut out to be an entrepreneur. It has nothing to do with race, color, creed, age, national origin, anything else. I know entrepreneurs who I mean, my close friend and mentor and role model, Norman Lear, is now 100 years old and is still starting new things. My father is 93. I recently invested in a company with a guy named Peter Sprague, who I think is 88, so there is no age impediment to doing it. I’ve invested in young kids and old people. However, it takes a certain kind of mindset. It takes the ability to be able to stomach some risk, to be able to have confidence in yourself, to bullet through, to to be able to start something when nobody knows you can nobody can tell you what to do.

David S Rose: [00:13:02] And so in reality, of all the people in the world, it’s a sort of a bell curve, right? Some some people are more entrepreneurial than others. The people who tend to start companies fall in generally into sort of the top 5% or so of the world or one 5% towards one end of the entrepreneurial world, you know, 1%, 1% or 20% of the of that 5% are people who are natural born entrepreneurs. They were born to do this stuff. And they’re the people who will be starting companies as a six year old. Right. And you find them and, you know, I’m one of those guys. My father is one of those guys. There are people like that of all kinds. And in all countries as well. The other majority, 80% of people who start companies, however, are what I call self-made entrepreneurs. And these are people who are entrepreneurial, but they have experience in their domain and their business area with a particular technology or or marketplace. And they see a need and they they they take a survey of what they who they know and what they have and what their ideas are. And then they create a company to fill that need and they actually can grow really, really big. And so that’s the majority of people we see starting companies. But the answer is there is nothing stopping anybody in general if you are otherwise attuned to being an entrepreneur.

Lee Kantor: [00:14:23] And is that why it’s so important to have things like the Levanon Center of Innovation, places where you can go and be around other kind of like minded people, other mentors, people that can kind of guide you if you have that spark, you know, whether it’s your own idea. If you’re a creator like that or you’re a see an opportunity in the niche, but to have a place where you can go that can help you create that infrastructure, you need to be successful.

David S Rose: [00:14:56] Absolutely. I mean the Levant center for. Or your listeners who haven’t been there. I mean, you have to go there. It is literally mind boggling. I’ve been around the entrepreneurial business, as I mentioned my entire career, and I run this platform that has got more power than anybody else in the world. I have never been to a place like Lemon. It is truly mind boggling. I mean, it’s 54,000 square feet. They call themselves or actually somebody called them and they’ve adopted it as their tagline as an entrepreneur’s theme park. And that’s exactly what it is. I mean, they have the people, the startups, the mentors, they have the technology to create your own podcast. They have the technology to to do your pitches to investors. They have pitch nights, they have accelerators, they have they’re building a whole 3-D studio for motion capture. They have a make a robotics lab. They have you know, it is a truly unbelievable place. And most importantly, what they have are other startups, other entrepreneurs who are starting companies, entrepreneurs who are in their universe, people like me who come down and mentor and talk and teach and lecture. They have this great accelerator program which has multiple levels, so they are big enough and they have enough tools and mentors. And in a universe to have not just one accelerator program, but multiple ones, ones for pure startups. And with the idea stage and ideation stage, ones that have just gotten started and are accelerating, ones that are later stage and need help expanding and growing, then they’ve got specialized ones. First for the space industry and other things. So for any entrepreneur in the area or frankly even out of the area who is looking for a place for support and inspiration and people to help them on their journey, the center of innovation is a truly mind boggling place.

Lee Kantor: [00:16:53] Now, in your work, is there any story that stands out for you working with an entrepreneur, maybe mentoring an entrepreneur that you can share that you were maybe help them get over a problem that they might have thought was insurmountable, that you were able to add something to based on your experience that help them get to a new level?

David S Rose: [00:17:14] Yeah, I mean, I wouldn’t take credit for it, but, you know, I mentored and worked with founders for four decades. And I’ll give you one interesting example, and that’s a team. When I was judging the NYU Business Plan competition up here in New York many, many years ago, one of the teams that was presenting in this university affiliated business plan competition was a techie and a guy who did presentation design for for a law firm. And they were both comic collectors, comic book collectors. And they said they thought that there was a business for comic book collectors in helping to organize your collection software, to organize your library and a news feed to find out what was new, what new comic books were being released. And by the way, they all bought their bought their comics at the local comic book store like you saw on the Big Bang Theory. And those guys didn’t have any software. So maybe you could do software for the comic book stores that could tie into the software for the comic book collectors. And they were really energetic and knowledgeable. Clearly, I’m not a comic book guy, but they were. And so and they had a great plan, a great presentation.

David S Rose: [00:18:21] So we actually they actually ended up winning the business plan competition. We suggested that they apply for funding to our angel group, New York Angels. So they applied for funding to York Angels. I invested in them. We led the round. The company was called Comixology. And cut a long story short, a number of years later they were in position when the iPhone came out to let you read comic books on your iPhone before anybody knew that the iPhone was going to be very big. And so they did deals with Marvel and DC Comics and so on, and they became the way to read comics on your iPhone. And so eventually, when digital books came into play, who’s a big player over there? As Amazon and Amazon looked at them and they and these guys, my little teeny company, owned the marketplace for comics, and so they ended up being acquired by Amazon. And today, if you are a comic book reader, you will likely read your comic books on Amazon’s comics platform, which is called Comixology, which started out as a couple of guys in a garage at the NYU Business Plan competition.

Lee Kantor: [00:19:19] Well, amazing story. And another example of you set out to do one thing and you might end up doing something else that’s tangential, but you have to start somewhere.

David S Rose: [00:19:29] Yep, we call it pivoting. And I don’t know of any company that didn’t pivot. I mean, whether you’re talking about Amazon, which started out selling books to and now becoming the world supermarket, whether you’re talking about Uber, which a fundamental limited partner was the first investor in Uber when they were simply dispatch software for local black car services in San Francisco before they changed the entire pace of transportation. And so you never know where you’re going to. But if you’re a good entrepreneur, you start trying to solve a problem. And then, as you said, no battle plan survives first contact with the enemy. And the corollary to that, of course, is no business plan survives first contact to the market. But once you do find out what your MVP is, your minimum viable product, and you see how people and your users are reacting to it, you then pivot and you adjust and you tweak. And that’s the entire essence of the Lean Startup. So there’s a book called The Lean Startup Methodology by my friend Eric Reese, which is all about how you start Don’t make a giant plan and a 15 year product roadmap. Just start doing something. Get it out there into the hands of your clients and customers, see what they like, what they don’t like, and on the basis of that feedback, tweak the product and or build something else or go in a different direction. And that’s ultimately how you build something that can sustain a large market.

Lee Kantor: [00:20:50] Now, for the startup founders out there, is that your biggest piece of advice? Because taking action and starting, you can’t beat that. That’s a that’s non-negotiable.

David S Rose: [00:21:01] One, if there’s one piece of non-negotiable advice, it is just start. I mean, literally, you know, I joke that there are four kinds of entrepreneurs. There are the natural born entrepreneurs. I mentioned the self-made entrepreneurs. I mentioned there are survival entrepreneurs who will do whatever they have to do to put food on the table for their kids. But then the fourth group we call, it’s really three and a half because we call that fourth group the Want for Pioneers. And these are people who talk a very big game about starting up and they read all the books and they namedrop Jeff Bezos and Elon Musk and so on and so forth. But they never actually start a company and you can’t get anywhere unless you start. And so the one piece of advice to anybody listen to this podcast is if you think of yourself as a founder, if you are thinking about starting something, just do it. Just start. Don’t wait for funding. Don’t wait for somebody telling you it’s okay. Don’t wait for a class, Don’t wait for a sign from above. Just start. And as rough and tough as it is, as you get started, you’ll find something.

David S Rose: [00:22:04] It may not work at all. Or it may work with a little teeny tweak, in which case tweak it and then try it again. And eventually you will find just enough success that you will have the the psychological support from yourself to keep going. And then along the way, you want to reach out to people, find co founders to start a whole company often will take to not a one person job or three. Find out if there is support near you from things like the Levant Center, which is a remarkable place to find peer support and office space and tools and services and all kinds of things for founders when you’re ready, but not immediately because you will not get funded by Angel immediately. Find local investors through a local angel group. But angels will not fund an idea. Angel investors only fund a company that has actually started doing something. So start doing something as tough as it takes, as dangerous, as crazy as leap as it sounds. Just start and then that’s the way you get going.

Lee Kantor: [00:23:02] Now, you mentioned fundraising a little bit. There was a time, at least in the mythology of this industry, in this world of funding off of a napkin, an idea on a napkin. Are those days over? Is it now kind of bootstrapped first, have some, you know, sell somebody something before you start fundraising? And is that part of the trends that you’re seeing in fundraising moving forward?

David S Rose: [00:23:26] Yeah, The problem is that was really a mythological day, right? I mean, that was in mythology, something that didn’t actually happen. And so it became a cliche because it happened just enough. It happened once or twice, and that became a famous story. And then everybody assumed, Oh, I got fucking on the back of a napkin. But in the real world, that was never a common way of doing things. I mean, for a little bit of time in the late 1990s, during the dot com boom, the world was crazy enough and there were potential investors who didn’t want to lose out on a good thing. And so they didn’t have they had no idea what they were doing. And so if somebody came to them and said Internet, they would say, Here’s some money. But that was again, it was few and far between companies, but it just never got funded. People lost a lot of money. And then after that, they sobered up. And so certainly for the last 20 years, even, I mean, right now we are going through a particularly tough time in the market. During the global financial crisis, there was a tough time between those times. There have been better times and there likely will be so. But whether it’s a good time or a not good time, investors are looking for traction and so they don’t look frightened. Investors simply don’t fund ideas. And so you can spend all day long talking great idea of drawing things, sketches on a napkin and you will not get funded.

David S Rose: [00:24:43] Instead, if you go out and do something, get the thing started, and then find out that, hey, you’re actually doing something that somebody else finds interesting. That’s what investors invest in. And when investors say traction, it’s really interesting. It’s not at all what founders think of as. You have to wonder what destruction mean. They’ll likely say, Oh, I filed for the name of my company. I incorporated it, I wrote some code, I brought on a founding partner. People said nice things about me, you know, all those kinds of. I registered the trademark. I got a patent. As far as investors are concerned, none of that is traction, believe it or not. Instead, as far as investors concerned, traction can be defined as something outside of your control that shows that somebody else is willing to assign real economic value to what you’re doing. So the bottom line is, of course, therefore, by that definition, the best traction is sales. And so if you have profitable sales, that’s a great thing that investors love to see. And anything less than that is going to be getting farther away from what they hope for as traction people who are beta customers or pilot customers or whatever. But that’s the kind of traction that investors are looking for.

Lee Kantor: [00:25:59] So now regarding just what is it that you need? What can we be doing to help you?

David S Rose: [00:26:06] Well, you can help spread the word because Gusto is this great platform for starting a company. If you are one of these founders who is looking to get started. The best way to get started is actually with a platform we have called August launch, which is the way you launch a company. It’s I joke that it’s almost an IQ test because if you’re starting what you expect to be a high growth, venture fundable company and you don’t start this way, you bet. Such a big bet that it makes me question how smart you are, because literally for $300 to $300 for a whole year, you can you press a button and Gus spins up the company for you. Literally, we incorporate you as a Delaware C Corp, which is the kind of thing that investors need to see before they will fund you. We filed with the IRS to get your new employer identification number. We foreign qualify you in your home state. We set up your cap table. We issue your shares of stock to your founding team. We do all the basic things that it takes to actually get you started and then through other things as you go along, we help give you literally 100,000 bucks worth of discounts to all kinds of tools and services. We’ll help manage your equity and write your option plan and get you a checking account and introduce you to an attorney who will give you a free legal work and so on and so forth.

David S Rose: [00:27:23] And so Gus launch is the platform that is ideal for founders. And when we show this to a first time founder, they’ll say, Wow, that sounds really interesting when you show it to any founder who’s actually started a business before. What’s very funny is they have the exact same reaction I actually have a framed on over my desk because they say the exact same literal words. And those are quote unquote, Holy shit. Where were you when I started my last company? I would save 100,000, end quote. So the best thing you could do for us is to help get the word out, because if you are a founder who is thinking of launching a company that you expect to get funded by angel investors or VCs run, do not walk to gusto dot com and g ust dot com and you’ll find all kinds of both free tools and guts launch which will help start up and incorporate your company. And you’ll also be able to find when you’re ready for it access to investors and apply to accelerator programs and all kinds of things for that because that’s what we do. We support these early stage founders.

Lee Kantor: [00:28:24] And then on that site, will you also find maybe opportunities to partner with other innovation centers or accelerators? Is it a resource like that?

David S Rose: [00:28:33] You will search. If you search there, you will find the Levant Center, and if you actually apply for the Levant Center spaceport, you’ll find yourself on just as well, because we’re powering that accelerator program for them. So absolutely, it’s it’s a great place to find the ecosystem and to and to start a company.

Lee Kantor: [00:28:51] So one last thing before we wrap. How do you feel about the economy? Are you bullish right now? Is this an opportunity for a lot of folks? Because a lot of people, you know, they like to wait and hide and until a bell rings, it tells them it’s time to start again. How do you feel about this?

David S Rose: [00:29:07] Well, the interesting thing is, you know, for who? Right. There are all kinds of people involved at all stages. And so if you are a current company in the early stage startup world who raised, you know, a first round of cash, say, a couple of years ago at a nice high valuation, expecting that you be able to do an even bigger round right now, this is not a good time. You will find a lot of trouble raising around If you were somebody who hasn’t raised around yet and you read stories about those other guys and you have dreams of people investing in your company and giving you millions of dollars at a $20 Million valuation, you’re also in for a disappointment because that’s not going to happen either. But if you are somebody who sees a real need and an entrepreneurial need and you’re able to get your act together and get started and just do something. Just get started, even if it’s really, you know, small and beginning stages and you can bootstrap yourself without a lot of money. This is a perfect time to start a business because by the time you are ready for an angel investment round or a VC round in a year or 18 months, two years, when you’re ready, that will be the beginning of the next boom cycle and you’ll find investors there to fund you because you will have had traction that that they can see based on what you’ve done these last couple of years. So this is a great time to start a business. It’s not really a great time to get a business funded.

Lee Kantor: [00:30:33] Well, David, thank you so much for sharing your story today, doing such important work. And we appreciate you.

David S Rose: [00:30:39] My pleasure. Thank you very much.

Lee Kantor: [00:30:41] All right. This is Lee Kantor. We’ll see y’all next time on Innovation Radio.

Intro: [00:30:46] This episode of Innovation Radio was brought to you by the world’s first theme park for entrepreneurs, the Levant Center of Innovation, the only innovation center in the nation to support the founders journey from birth of an idea through successful exit or global expansion. If you’re ready to launch or scale your business, please check out the Levant Center of Innovation by visiting Nova edu forward slash innovation.